Nicole Li
2.1 Microeconomics and
macroeconomics
an area where people and firms produce, trade and consume goods and services. This can vary in size- from
Definition of economy your local town to your country, or the globe itself.
List some concerns about both economies (Notes)
Microeconomics is the study of individual markets. For example: studying the effect of a price change on the
demand for a good. Microeconomic decision makers are producers and consumers (who directly operate in
markets)
Macroeconomics is the study of an entire economy, as a whole. Examples include studying the total size of
the economy or the unemployment rate, among other things. Macroeconomic decisions are made by the
Two types of economics government of the particular economy – a town, state or country)
2.2 The role of markets in allocating
resources
the way in which economies decide what goods and services to provide, how to produce them and who to
Definition of 'economic system' produce them for.
What are the 3 types of economies? Market (private sector), command/planned (public sector), mixed
the way in which economies decide what goods and services to provide, how to produce them and who to
Definition of resource allocation produce them for.
3 basic economic questions What, how, for whom
Command/Planned economy: decided by the government (aim: maximise social welfare)
Market economy: decided by private firms, determined by the price mechanism (aim: maximise economic
welfare)
What: G&S with higher prices/in demand
How: methods to maximise output and minimize cost
How do different economies answer WHAT, To whom: to consumers who are willing and able to purchase the product
HOW, and FOR WHOM TO PRODUCE? Mixed economy (a combination of private sectors and public sectors): market prices act as a signal (aim: profit
(in notes) seeking), but can be interfered by governments
any set of arrangement that brings together all the producers and consumers of a good or service, so they may
definition of market engage in exchange. Example: a market for soft drinks.
In a planned/command economy, goverments
utilize AAA' money to produce G&S that
increase BBB taxpayers', social welfare
Explain what is a normal good and an inferior normal: income↑ D↑
good with examples. (in notes) inferior: income↑ D↓
Definition of 'substitutes' when its purchase can replace the want for another G&S
Definition of 'complementary good' usually in 'joint demand' with other G&S
2.3 Demand
Definition of 'effective demand' the willingness and ability of consumers to buy G&S at different prices over a period of time, ceteris paribus
Definition of Qd/Qs the amount of G&S consumers/firms are willing and able to buy/produce at a certain price over a period of time
1. There is a contraction of demand from A1 to A3 caused by the increase of the price of this product from P1 to
1. Describe the movement along this demand P3.
curve from A1 to A3. 2. There is an extention of demand from A1 to A2 caused by the decrease of the price of this product from P1
2. ~ from A1 to A2. to P2.
↑ in consumers' disposable income
↑ in P of substitutes
↓ in P of complementary goods
↑ in population
6 causes of increase in demand/D curve trend in favour of the product
shifting outwards ↑ advertising of the product
↓ in P of substitutes
↑ in P of complementary goods
↓ in population
trend away from the product
7 causes of decrease in demand/D curve ↓ advertising of the product
shifting inwards regulations (bans, taxes...)
2.4 Supply
the willingness and ability of producers to provide the G&S at different prices over a period of time, ceteris
Definition of 'supply' paribus
demand/supply of 1 consumer' vs 'sum of the individual consumer demand for a given product/individual supply
Individual vs Market demand/supply curves of producers competing to supply that product'
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